Government underestimates the cost of fraud to charities, conference delegates hear

Carl Watson of the accountancy firm Chantrey Vellacott DFK tells a Charity Finance Group conference that the figure of £147.3m for the year to March 'doesn't seem credible'

Carl Watson

The government’s estimate of the cost of fraud to charities does not give a true picture of the extent of it, a fraud expert told delegates at the Charity Finance Group’s risk conference yesterday.

The National Fraud Authority’s Annual Fraud Indicator, published in June, estimated that fraud cost UK charities £147.3m in the year to March 2012.

But Carl Watson, who manages the fraud and forensics unit at the accountancy firm Chantrey Vellacott DFK, said at the conference in London yesterday that he thought the crime cost charities far more than that estimate.

"It seems very low when you consider that there are 165,000 registered charities in England and Wales, 23,000 in Scotland and an estimated more than 7,000 in Northern Ireland," said Watson. "It just does not really seem credible to me."

The NFA’s indicator was based on a survey of 1,599 charities with annual incomes of more than £100,000; 9.2 per cent reported being victims of fraud in 2011/12.

"Fraud is such a difficult crime to put accurate figures on," he said. "It is by its nature hidden, it goes on undiscovered for years and often goes unreported.

"It is such a ubiquitous crime, and there are so many different schemes and methods. The data is unsatisfactory."

Some frauds were nearly impossible to detect, he said, highlighting the example of the gang of bogus charity collectors who were jailed earlier this year for stealing at least £26,000 intended for Marie Curie Cancer Care.

"They even forged thank-you letters to a number of donors," he said. "It was very unremarkable, it went on for three years and that’s the troubling issue – it could easily happen to so many organisations."

Fraud affects a charity’s income, morale and reputation, he said. "It also undermines public trust and confidence in the sector and giving to charities as a whole," he said.

Fraud is usually committed by people with some connection to the organisation, he said: the NFA study found that 70 per cent of the reported frauds were internal.

Watson’s advice to charities was to take into consideration everyone that comes into contact with the organisation, including staff, volunteers, third parties and service users.

He advised that any cheques should require dual signatures and that more than one person should be responsible for checking bank statements. "Trust is not a substitute for good procedures," he said.

In one case, a charity required dual signatures on cheques but an employee had been forging the second signature for seven years, stealing tens of thousands of pounds, he said. Watson said this could have been detected earlier if someone else had looked at the bank statements.

He urged charities to think about everything, including online activity, data protection, post and paperwork.

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